Commodity Prices Up Before USDA Report

With the United States Department of Agriculture reporting tomorrow on the condition of crops, the exchange traded funds for corn, soybean and wheat all rose in trading today.

Tecucrium Corn (NYSE: CORN) was up 0.33%, $.64, to $51.94, closing near its 52-week high. Teucrium Soybean (NYSE: SOYB) jumped 2.57%, $0.67, to $26.70, near its peak of $27.58 for the last year of trading. Teucrium Wheat (NYSE: WEAT) rose by 2.43%, $0.60, to $25.25, almost nudging its high of $25.94.

Prices for corn, wheat, and soybean have been soaring due to the drought in the Midwest farm belt of the United States. By far, the biggest impact has been on the corn crop in the United States. Most of the US corn crop is in very poor condition. As the United States produces about 40% of the corn in the world, this has naturally driven up the price of the grain.

Other farm commodities have soared, too. Some, such as the wheat crop, are in good shape. But momentum trading has sent all share prices surging since June. This will not last much longer.

As the chart below clearly demonstrates, there have already been a number of pullbacks in commodity prices. Wheat is particularly vulnerable as forward contracts are selling at lower prices. That certainly sets the WEAT up for a short squeeze. Expect that, too, for the CORN and the SOYB as trading this week has been very heavy.

Like the old saying goes, “Grain takes the elevator up, but the stairs down.”

While going short of commodity exchange traded funds, look to go long on meat product stocks such as Tyson Foods (NYSE: TSN) and Smithfield Foods (NYSE: SFD). As the second chart clearly demonstrates, these companies have suffered as higher grain prices have increased the cost of livestock, cutting into margins. Expect a recovery for Smithfield Foods and Tyson Foods.